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Meaning of Financial Management

Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilizat of funds of the enterprise. It means applying general management principles to financial resources of the enterprise.

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Investment decisions includes investment in fixed assets (called as capital budgeting). Investment in current assets are als part of investment decisions called as or!ing capital decisions. Financial decisions # $hey relate to the raising of finance from various resources hich ill depend upon decision on type o source, period of financing, cost of financing and the returns thereby.


&ividend decision # $he finance manager has to ta!e decision ith regards to the net profit distribution. 'et profits are gene divided into t o( a. &ividend for shareholders# &ividend and the rate of it has to be decided. b. )etained profits# *mount of retained profits has to be finalized hich ill depend upon expansion and diversification plans of the enterprise.

Objectives of Financial Management

$he financial management is generally concerned ith procurement, allocation and control of financial resources of a concern. $he ob+ectives can be# 1. $o ensure regular and ade,uate supply of funds to the concern. ". $o ensure ade,uate returns to the shareholders hich ill depend upon the earning capacity, mar!et price of the share, expectations of the shareholders. %. $o ensure optimum funds utilization. -nce the funds are procured, they should be utilized in maximum possible ay at least cost. .. $o ensure safety on investment, i.e, funds should be invested in safe ventures so that ade,uate rate of return can be achieved. /. $o plan a sound capital structure#$here should be sound and fair composition of capital so that a balance is maintained bet een debt and e,uity capital.

Functions of Financial Management

1. Estimation of capital requirements: * finance manager has to ma!e estimation ith regards to capital re,uirements of the company. $his ill depend upon expected costs and profits and future programmes and policies of a concern. 0stimations have to be made in an ade,uate manner hich increases earning capacity of enterprise. Determination of capital composition: -nce the estimation have been made, the capital structure have to be decided. $his involves short# term and long# term debt e,uity analysis. $his ill depend upon the proportion of e,uity capital a company is possessing and additional funds hich have to be raised from outside parties. Choice of sources of funds: For additional funds to be procured, a company has many choices li!e# a. Issue of shares and debentures b. 1oans to be ta!en from ban!s and financial institutions c. 2ublic deposits to be dra n li!e in form of bonds. 3hoice of factor ill depend on relative merits and demerits of each source and period of financing. .. Investment of funds: $he finance manager has to decide to allocate funds into profitable ventures so that there is safety on investment and regular returns is possible. Disposal of surplus: $he net profits decision have to be made by the finance manager. $his can be done in t o ays( a. &ividend declaration # It includes identifying the rate of dividends and other benefits li!e bonus. b. )etained profits # $he volume has to be decided hich ill depend upon expansional, innovational, diversification plans of the company. Management of cash: Finance manager has to ma!e decisions ith regards to cash management. 3ash is re,uired for many purposes li!e payment of ages and salaries, payment of electricity and ater bills, payment to creditors, meeting current liabilities, maintainance of enough stoc!, purchase of ra materials, etc.






Financial controls: $he finance manager has not only to plan, procure and utilize the funds but he also has to exercise control over finances. $his can be done through many techni,ues li!e ratio analysis, financial forecasting, cost and profit control, etc.